Dollar sinks to new low against the yen MARKETS

June 11, 1993|By New York Times News Service

The dollar hit a new low against the yen yesterday even as the manager of the nation's currency market dealings stressed the need for stability.

Administration officials have been talking the dollar down against the yen this year to try to promote exports and discourage imports, in hopes of narrowing the vast trade deficit with Japan.

William J. McDonough, manager of the Federal Reserve System's open market account, set a contrasting tone at a quarterly briefing yesterday, stating the government's intent to avoid a headlong sell-off.

As of late April, he said, "The dollar-yen exchange rate was at that point moving too far, too fast, in part due to apparent misperceptions in the market of U.S. policy-makers' views." He added, "If the market perceives a U.S. policy in appreciation of the yen, the market is mistaken."

Lending detail to moves already familiar to market strategists, he confirmed that on April 27, the government sold a modest $200 million in yen for dollars, evidently coordinating its support for the dollar with the Bank of Japan.

That intervention braked the dollar's decline at about 109 yen, then a record, but only temporarily. As the dollar has fallen since then, currency traders have seen the Fed's hand in the market several more times. These moves have generally been slight, more to indicate the government's sentiments than to fight the trends.

Yesterday, the dollar fell to 106.16 yen, from 106.45, in New York, leaving a currency worth 20 yen less than in January.

Against the German mark, the dollar fell to 1.6295 marks, from 1.6358 late Wednesday, after having gained Wednesday from some well-timed comments by George Soros, the manager of a large investment fund. Mr. Soros said that German interest rates were likely to fall, reducing the mark's attractiveness.

Traders saw no reason to relent in selling the dollar against the yen, however. So far, the U.S. and Japanese governments have tried only to slow the dollar's decline, not halt it, said Michael Levy, a currency options trader at Societe Generale. "As long as that happens, you will have people trying to push it down and down," he said. "Why stop now?"

Speculators can use strategies that yield huge profits from even a slight change in rates. These strategies often accelerate the market's momentum.

The dollar dipped below 105.9 yen before recovering yesterday, but Mr. Levy predicted a test of the 105 level. Traders will be watching today's report on producer prices, and Tuesday's on consumer prices, for signs of revived inflation, which could produce higher interest rates and a stronger dollar.

At yesterday's news conference in New York, Mr. McDonough, in tones of measured forbearance, formally confined his remarks to the three months through April, the Fed's own distinctive quarter. The Fed's press release went to the extent of quoting Lawrence H. Summers, under secretary of the Treasury for international affairs, on the risk that currency volatility would hinder growth.

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